Two days ago, the New York Times published an op-ed by Ron Chernow on the explosive hearings of 1933-34 that demonstrated how corrupt Wall Street had been in the 1920s boom.
(I have not read the book, Wall Street Under Oath, by the head investigator Ferdinand Pecora, but intend to do so.)
Mr. Chernow's op-ed is a necessary read for anyone interested in parallels between the serial frauds of the late-1990s stock bubble and the "aughties" housing and other credit bubbles. One point he makes is however incomplete and leads me to a criticism of our era vs. the 1930s and subsequent eras where the political parties really were different. Hint on my point of view: Where the 1930s gave us the heroic Pecora, the current era gave us . . . Eliot Spitzer.
Chernow concludes:
"Our current stock market slump and housing bust can seem like natural calamities without identifiable culprits, creating free-floating anger in the land. A public deeply disenchanted with our financial leadership is desperately searching for answers. The new Congress has a chance to lead the nation, step by step, through all the machinations that led to the present debacle and to shape wise legislation to prevent a recurrence." (Emphasis added)
All well and good, but think more deeply. Guess what: the "new Congress" is essentially the old Congress! (Which didn't even bother investigating all the no-bid and often "no-doc" Halliburton and other Iraq War contracts, where they obviously would have had a field day).
Except for a few well-pubicized "perp walks" after the stock scams of the second half of the '90s, Congress held no hearings that demonstrated the need for new legislation. All the wrongdoing that was exposed was well-covered by existing legislation. In that sense, the Sarbanes-Oxley legislation was irrelevant to the known misdeeds. Seen in context, it was passed to pacify the public so that continued financial abuses could occur.
More relevant to the current situation, consider that in the spring of 2005, the Comptroller of the Currency stated on CNBC that home lenders were making very risky mortgages. A look at the stock charts of homebuilders showed that they peaked more or less exactly at that time. (I got out of housing stocks at that time.) Mortgage companies started failing in 2006. Nouriel Roubini (and others) became vocal at that time about major economic problems in our future due to the housing bubble. By late fall 2007, even the White House and Congress recognized that the economy was sinking, and with minimal hearings quickly agreed to "stimulate" the economy with tax rebates and other goodies. In the summer of 2008, Congress rapidly cobbled together legislation, reportedly written by BofA, to "protect" underwater mortgagees. By then there was no doubt that something was rotten and had been rotten in the mortgage system in this country. By late summer and fall, even the deaf and blind knew that there had been disastrous management of our biggest financial institutions. Fannie, Freddie, numerous banks, AIG . . .
Yet one evening in October, when the plan to transfer taxpayer wealth to these very institutions was well underway in secret, Secretary of the Treasury Paulson and Fed Chairman Bernanke visited Congressional leaders who literally pronounced themselves "shocked" at how bad things were in the financial system of this country.
Hearings? Congress was too busy planning to get out of town to show voters that they "cared" about them and get re-elected. The two-thirds of Senators who were not up for re-election were also too busy to bother with hearings. This was, suddenly, an emergency. Why? Because the same Administration that the Democrats had pilloried for supposedly false scare tactics re the Iraq War told them that there was only one way to go. Plus Bernanke said so. No matter all the happy talk from the same people all year. Put Hank and Ben on the spot for failing to sniff out the ongoing debacle? Puh-leese . . . perish that thought- there's Federal money to be spent!
The serial bailouts ensued, with no accountability, no coherence, minimal debate, a nd scare tactics. When the Dow dropped 777 points the day the House voted down the bailout, a succession of insiders scared the public with threats of a Great Depression II and a 2000 point further drop in the Dow if this wonderful legislation were not passed. For a day or two, polls allegedly showed that the public was indeed scared, and got the measure's popularity to (allegedly) 50-50 from widely hated.
The Senate, for good measure, attached the $700 B TARP bailout bill to another spending measure; $700 B wasn't good enough!
When the bailout then passed, the market fell almost 3000 points and the economy worsened. No insiders were heard to comment that passing the TARP in fact was followed by the "feared" results of rejecting the bailout.
So here we have it. No hearings, no accountability. Bipartisanship at its worst.
In the 1930s, the opposition party really opposed. So it was in the 1970s, when Nixon was chased out, in the 1980s, when Reagan was under threat of impeachment and in Bush I's term, when George Mitchell stuck it to him repeatedly, and in the 1990s, when the Perot/Gingrinch movement stood for something and achieved results. Now there is no effective opposition. Congress held no hearings about alleged impeachable offenses by Bush or Cheney. They were too busy taking lobbying money by financial companies to bother investigating the web of corruption that brought us the mortgage mess, ranging from fraudulent appraisals and other local misdeeds up to the corruption and stupidity in the financial community that repackaged subprime and alt-A mortages in a manner that made them unmodifiable and often almost untraceable. No one in power cared that the "credit default swap" market was on its face a combination of:
1) unregulated insurance without reserves; and 2) gambling, probably illegal, between two parties neither of whom had any economic interest in the failure or success of a debtor; and no one cared that the face value of this "CDS" phenomenon grew to approximately equal global annual GDP; and no voices in power in DC have been decrying the many billions of Federal dollars that have quietly gone to make us the ultimate guarantor of AIG's guarantees.
Unfortunately, Mr. Chernow's calls for hearings sound wishful. Congress has been controlled by the "opposition" party for two years. They got what they wanted: the White House. It is their turn now to help out their core constituents. (Financial companies are part of that group.) Trillion dollar deficits loom for every Obama budget. (This number will allow for health care "reform".)
If we can create so much money, why can't we create another Ferdinand Pecora to really unmask and publicize the financial corruption of the past ten years? Jurassic Park redux, anyone?
Copyright (C) Long Lake LLC
Wednesday, January 7, 2009
Tuesday, January 6, 2009
Employment Surges, but Where? Take a Guess . . .
An unexpected surge in employment has finally been found in this country, other than shipping off to the mini-surge in Afghanistan:
State Unemployment Claim Systems Overwhelmed
Growing number of jobless workers strains, sometimes knocks out unemployment filing systems
By RICHARD RICHTMYER Associated Press Writer
ALBANY, N.Y. January 6, 2009 (AP)
"Electronic unemployment filing systems have crashed in at least three states in recent days amid an unprecedented crush of thousands of newly jobless Americans seeking benefits, and other states were adjusting their systems to avoid being next."
"About 4.5 million Americans are collecting jobless benefits, a 26-year high, so the Web sites and phone systems now commonly used to file for benefits are being tested like never before. Even those that are holding up under the strain are in many cases leaving filers on the line for hours, or kissing them off with an "all circuits are busy" message. Agencies have been scrambling to hire hundreds more workers to handle the calls."
Every cloud has a silver lining?
State Unemployment Claim Systems Overwhelmed
Growing number of jobless workers strains, sometimes knocks out unemployment filing systems
By RICHARD RICHTMYER Associated Press Writer
ALBANY, N.Y. January 6, 2009 (AP)
"Electronic unemployment filing systems have crashed in at least three states in recent days amid an unprecedented crush of thousands of newly jobless Americans seeking benefits, and other states were adjusting their systems to avoid being next."
"About 4.5 million Americans are collecting jobless benefits, a 26-year high, so the Web sites and phone systems now commonly used to file for benefits are being tested like never before. Even those that are holding up under the strain are in many cases leaving filers on the line for hours, or kissing them off with an "all circuits are busy" message. Agencies have been scrambling to hire hundreds more workers to handle the calls."
Every cloud has a silver lining?
On Gold; or, On, Gold?
The Financial Times.com has a piece on gold that concludes:
"The clear alternative to the dollar in 2009 is not other currencies but that ancient form of money: gold. Precious metals could emerge as a hedge for investors suspicious of central banks and fearful that inflation will be the simplest solution to the challenge of global deleveraging."
Leaving off the hedge "could" in the second sentence, the message is to consider buying gold. Of course, this is not news. The major point of gold is succinctly addressed by Naked Capitalism in a comment on this FT article:
"For the record, my Japanese buddies (who among them control a huge amount of investment funds) argue that this is rubbish, the amount of gold is too small for it to serve as a meaningful money alternative."
While Naked Capitalism does not specifically endorse this view of certain Japanese, the wording that the Japanese view is "for the record" raises the question of whether NC meant to approve of this view.
My view of the Japanese view is to disagree most strongly. It doesn't really matter how much gold there is. There is much more gold around than in 1930, when all the world that mattered was on a gold standard. Whether gold is priced at $1000, $10,000, $100,000 or $1,000,000 per ounce is irrelevant. Gold is accepted by most people in world as a store of value, does not tarnish, and the quantity of accessible gold cannot change by much yearly. So, it is indeed possible for gold to be money again.
However, given that we have "been there and done that", I suspect that it would take a disaster of horrendous proportions to go back to gold rather than on to some other standard.
Given that gold pays no interest, usually costs money to store, and can be confiscated by governments as Roosevelt did here, it has negatives that "money" such as fiat money lacks.
I agree with Mish in his post today that there is no point in predicting the price of gold in 2009.
However, it is always interesting to look at the chart with standard moving average techniques.
The declining 200 day moving average shows GLD to be in a precarious position. If the deflationary theory continues to hold, GLD will trend down to re-enter a bearish posture. (Not shown is the more positive chart vs. the 50 day MA.)
It makes sense to own gold as a hedge. This should be a bullion equivalent such as a Krugerrand.
I own gold and root against its "success".
"The clear alternative to the dollar in 2009 is not other currencies but that ancient form of money: gold. Precious metals could emerge as a hedge for investors suspicious of central banks and fearful that inflation will be the simplest solution to the challenge of global deleveraging."
Leaving off the hedge "could" in the second sentence, the message is to consider buying gold. Of course, this is not news. The major point of gold is succinctly addressed by Naked Capitalism in a comment on this FT article:
"For the record, my Japanese buddies (who among them control a huge amount of investment funds) argue that this is rubbish, the amount of gold is too small for it to serve as a meaningful money alternative."
While Naked Capitalism does not specifically endorse this view of certain Japanese, the wording that the Japanese view is "for the record" raises the question of whether NC meant to approve of this view.
My view of the Japanese view is to disagree most strongly. It doesn't really matter how much gold there is. There is much more gold around than in 1930, when all the world that mattered was on a gold standard. Whether gold is priced at $1000, $10,000, $100,000 or $1,000,000 per ounce is irrelevant. Gold is accepted by most people in world as a store of value, does not tarnish, and the quantity of accessible gold cannot change by much yearly. So, it is indeed possible for gold to be money again.
However, given that we have "been there and done that", I suspect that it would take a disaster of horrendous proportions to go back to gold rather than on to some other standard.
Given that gold pays no interest, usually costs money to store, and can be confiscated by governments as Roosevelt did here, it has negatives that "money" such as fiat money lacks.
I agree with Mish in his post today that there is no point in predicting the price of gold in 2009.
However, it is always interesting to look at the chart with standard moving average techniques.
The declining 200 day moving average shows GLD to be in a precarious position. If the deflationary theory continues to hold, GLD will trend down to re-enter a bearish posture. (Not shown is the more positive chart vs. the 50 day MA.)
It makes sense to own gold as a hedge. This should be a bullion equivalent such as a Krugerrand.
I own gold and root against its "success".
Land of the Setting Sun
We are Japan.
(Though with nukes and military bases in about 92 countries)
Barack Obama made it more or less official today: trillion dollar deficits are here to stay.
“Potentially we’ve got trillion-dollar deficits for years to come, even with the economic recovery we are working on.”
The dead hand of government will provide tax cuts, either by printing money or borrowing from the savers of the US and the globe, to "stimulate" something by someone: probably by paying down private debt and purchasing necessities at low profit margins for the vendors. This shell game is, as we used to say in the 60's and 70s, played out. Or as they say in the rural South, this dog won't hunt (any longer; he's too old). Additionally, government will print and borrow money to build and rebuild roads and buildings. Perhaps even most of this money won't be wasted or stolen, but based on Japan's experience, I wouldn't bet an economy on it.
Let's consider: Japan lost WW II and set about rebuilding. Its banking system went bust in the 1960s. We helped them put it back together in a way we should have emulated last year, and they embarked on a quarter century of unbelievable growth. After 1989, when their growth bubble popped, their economy grew in real terms, but more slowly, and they considered that slow growth to be a "Lost Decade" . Truly, we should be so lucky as to have a slow-growth no-inflation "lost decade" going forward. In 2008, Japan's stock market hit about a 25 year low. After many years of deficit spending, their debt -to-GDP ratio is almost 2:1, after starting at a very low level.
In U.S. and world history, winning wars is very important to longer-term economic dominance. Britain kept winning wars and dominating the world in the 18th and 19th Century. Victories in the two world wars were Pyrrhic. Unfortunately, the U.S. is suffering the effects of too many unsuccessful wars and has used up most of its real advantages from the big wins, to wit:
The U.S. fought to a draw in Korea (a war that technically is not over), lost the Vietnam War, fought (let us say) to a draw in an unexpectedly tough Iraq War, and is losing the Afghan-area War. The days of living off the sweeping victory in WW II have ended or are ending. The same is largely true with the Cold War victory; that party ended September 11, 2001. As with Japan, giant deficits are bipartisan policy. Massive wealth transfers to the undeserving corporate losers are also bipartisan and Fed policy. This is the zombification of America just as much as Japan did with its big banks in the 1990s. It is worse here and now for at least two reasons. One reason is that at least Japan could point to its culture and find a reason to support the zombie companies. Our zeitgeist was supposed to be 'agin that. The second reason is that we lectured Japan contemporaneously not to create zombies, and we were probably correct: but how hard it is for the doctor to diagnose and treat himself!
Americans are looking at disordered finances, economic stagnation, and political discord rising from the above. The people are dispirited and see the rot in the body politic. The October bank bailout, supported with excessive force by no good reason and/or changing rationales by the Establishment, was a defining moment. Massive wealth transfers have gone and continue to go to the worst-run giant companies in America. All this in a world of domestic peace, good harvests, abundant raw materials, a hard-working labor force, a general culture of honesty and fair dealing among the people at large (excepting the higher levels of government and many businesses), and unchallenged world dominance. This should be among the best of times.
We deserve better than it looks like we are going to get.
Copyright (C) Long Lake LLC
(Though with nukes and military bases in about 92 countries)
Barack Obama made it more or less official today: trillion dollar deficits are here to stay.
“Potentially we’ve got trillion-dollar deficits for years to come, even with the economic recovery we are working on.”
The dead hand of government will provide tax cuts, either by printing money or borrowing from the savers of the US and the globe, to "stimulate" something by someone: probably by paying down private debt and purchasing necessities at low profit margins for the vendors. This shell game is, as we used to say in the 60's and 70s, played out. Or as they say in the rural South, this dog won't hunt (any longer; he's too old). Additionally, government will print and borrow money to build and rebuild roads and buildings. Perhaps even most of this money won't be wasted or stolen, but based on Japan's experience, I wouldn't bet an economy on it.
Let's consider: Japan lost WW II and set about rebuilding. Its banking system went bust in the 1960s. We helped them put it back together in a way we should have emulated last year, and they embarked on a quarter century of unbelievable growth. After 1989, when their growth bubble popped, their economy grew in real terms, but more slowly, and they considered that slow growth to be a "Lost Decade" . Truly, we should be so lucky as to have a slow-growth no-inflation "lost decade" going forward. In 2008, Japan's stock market hit about a 25 year low. After many years of deficit spending, their debt -to-GDP ratio is almost 2:1, after starting at a very low level.
In U.S. and world history, winning wars is very important to longer-term economic dominance. Britain kept winning wars and dominating the world in the 18th and 19th Century. Victories in the two world wars were Pyrrhic. Unfortunately, the U.S. is suffering the effects of too many unsuccessful wars and has used up most of its real advantages from the big wins, to wit:
The U.S. fought to a draw in Korea (a war that technically is not over), lost the Vietnam War, fought (let us say) to a draw in an unexpectedly tough Iraq War, and is losing the Afghan-area War. The days of living off the sweeping victory in WW II have ended or are ending. The same is largely true with the Cold War victory; that party ended September 11, 2001. As with Japan, giant deficits are bipartisan policy. Massive wealth transfers to the undeserving corporate losers are also bipartisan and Fed policy. This is the zombification of America just as much as Japan did with its big banks in the 1990s. It is worse here and now for at least two reasons. One reason is that at least Japan could point to its culture and find a reason to support the zombie companies. Our zeitgeist was supposed to be 'agin that. The second reason is that we lectured Japan contemporaneously not to create zombies, and we were probably correct: but how hard it is for the doctor to diagnose and treat himself!
Americans are looking at disordered finances, economic stagnation, and political discord rising from the above. The people are dispirited and see the rot in the body politic. The October bank bailout, supported with excessive force by no good reason and/or changing rationales by the Establishment, was a defining moment. Massive wealth transfers have gone and continue to go to the worst-run giant companies in America. All this in a world of domestic peace, good harvests, abundant raw materials, a hard-working labor force, a general culture of honesty and fair dealing among the people at large (excepting the higher levels of government and many businesses), and unchallenged world dominance. This should be among the best of times.
We deserve better than it looks like we are going to get.
Copyright (C) Long Lake LLC
Monday, January 5, 2009
Technical Market Outlook
The above chart of the S&P 500 averages is from MSN.com.
A review of it explains why I believe the long-term technical configuration of the stock market argues either for extreme caution or outright bearishness.
This blog will delve into market history and analysis more in the future. For now, please consider the following: The stock market made a bottom in the spring of 1942, when war fortunes were at their low ebb. Another important bottom was made in the late 1940s, but at a much higher level than in 1942. However, the fundamentals were drastically better in the late 1940s: we won the wars in the European and Pacific theaters, and were (as we learned in retrospect) poised to reap the spoils. In any case, the market began a more or less steady up-move from the late 1940s, and started from a public position of revulsion. All responsible people "knew" that bonds and not stocks were the right long-run choice. Follow the waning of upward momentum through the early-to-mid 1960s. Then note the about 17-year stretch from 1965 through 1982 in which stocks went nowhere, despite high inflation. Then note the unstoppable upward momentum of the averages from 1982 onward. Even the severe recession of 1982 was associated with relatively minor downward movement of the averages- a clear waning of downward momentum compared with the also-severe recession/bear market of 1974. As the bull market aged into the 1990s, upward momentum got frenzied through the late 1990s.
What we see after the 1999-2000 peak is increasing momentum on the down-move from 2000-2002/3; waning upward momentum on the up-move through mid-to-late 2007, and sharper downward momentum in the current down-move than in the 2000-2002/3 down-move.
The 2007 top in the market roughly equaled that of 2000, but adjusted for inflation and the minimal dividend yield vs. the high rates in T-bonds/bills available in 2000, stocks were an inferior buy than bonds. All sorts of long-term uptrend lines were broken in the 2008 down-move. All the relevant long-term moving averages have now turned down.
Thus we have the following situation:
The intermediate-to-long-term market chart stinks. The fundamentals of the economy stink. The Government is fighting the results of an over-leveraged economy primarily with leverage, which is illogical. The best prognosticators, ranging from famous ones such as Nouriel Roubini to superb bloggers such as Mish, are much more downbeat than the Establishment economists.
In my opinion, Federal Government securities are fundamentally risky but will be treated as risk-free at least for the foreseeable future. Amongst them, Ginnie Mae mortgage-backed securities have full faith and credit of the Government and yield about what riskier Fannie/Freddie MBS's yield. As a ratio of T-bond yields, Ginnies are at extremely undervalued levels. Vanguard and Fidelity have Ginnie Mae funds with similar long-term results: VFIJX and FGMNX. Both are at highs but can go much higher.
If you want to speculate, for taxable accounts, buy high-grade municipal bonds and for tax-deferred accounts, consider ultra-high grade corporates- but only when panic returns to the stock market. Right now, almost anything that costs a significant amount of money is in oversupply and is therefore deflating in price. Keeping your money in a CD or T-bill at even no interest at all will buy you more of that sort of big-ticket "stuff" than it will this month.
The stock market dropped over 22% one day in 1987 in correcting a massive up-move from the 1982 bottom (almost a quadruple of the averages in only 5 years). The averages also dropped over 20% one week in October in a structural bear market. That 20% weekly drop in 2008 was a bigger weekly drop than the week that contained the 22+% daily drop in 1987. The averages could do the following at any time: drop 20% in a day, and end the week down an additional 20% for a 40% weekly drop. Remember that the headlines that preceded the 1987 record drop were not especially scary. In these truly parlous times, new record moves in the averages are possible. So investors who really can't afford to lose much money shouldn't worry if the averages move up another 10% or more. Wait till the charts and the fundamentals look better, then wait for scary headlines that truly are old news or have little to do with economic fundamentals. Then the sharks will be gone from the water and you can make money with reasonable safety in stocks. For now, don't even think about it.
"Stimulus" Plan Under Criticism Again
Rebecca Wilder has joined the voices criticizing the so-called stimulus plan:
"But there is one thing that always bothered me about this plan: if the rise of domestic construction production was to blame for the loss of productivity in the first half of 2000, why are the longer-term spending initiatives centered on construction projects? The focus should be on expanding our most productive sectors – manufacturing and exports - to stimulate innovation and productivity."
She goes on:
And if long-term growth is the name of the game, why focus on inefficient domestic construction efforts?
And concludes:
So why are we building roads? The focus on construction and infrastructure as the primary long-term stimulus is highly inefficient.
Her post also refers us to an interview with Joseph Stiglitz from the International Herald Tribune:
Stiglitz, who was chairman of the Council of Economic Advisers from 1995 to 1997, noted in an interview that there has been a slow divergence between traditional economics and what may be called innovation economics.
"I've been a bit astonished that all the discussion around the private-sector stimulus has centered on infrastructure," he said. "Bailouts, too, are aimed at correcting mistakes of the past, so they are backward-looking. We would be much better off spending our money forward-looking. If we spend $700 billion on new technology and innovation, we'd have a stronger, new, real economy. Up to now, the discussion has focused on the sectors that have been mismanaged rather than the sectors that are creating our future."
Here's the truth the Obamacans don't want to face. Forget William Ayers.
Sen. Obama's political career was launched by the now-convicted criminal and constructor of disgustingly substandard housing for the poor, Antoin "Tony" Rezko. As soon as he got to the Senate, he became probably the largest recipient of Fannie/Freddie lobbying money. Under his leadership, Bill Clinton's bridge to the 21st Century should be taken literally: we are now building bridges, tearing up roads, building roads to nowhere, all to strengthen Sen. Obama's patrons in the building industry. What this program means is neglect of growth areas and international competitiveness. We can't do it all. If we must borrow (which I disagree with), at least let it be for cutting-edge 21st and even 22nd Century stuff, not stuff that Julius Caesar would have grokked.
"But there is one thing that always bothered me about this plan: if the rise of domestic construction production was to blame for the loss of productivity in the first half of 2000, why are the longer-term spending initiatives centered on construction projects? The focus should be on expanding our most productive sectors – manufacturing and exports - to stimulate innovation and productivity."
She goes on:
And if long-term growth is the name of the game, why focus on inefficient domestic construction efforts?
And concludes:
So why are we building roads? The focus on construction and infrastructure as the primary long-term stimulus is highly inefficient.
Her post also refers us to an interview with Joseph Stiglitz from the International Herald Tribune:
Stiglitz, who was chairman of the Council of Economic Advisers from 1995 to 1997, noted in an interview that there has been a slow divergence between traditional economics and what may be called innovation economics.
"I've been a bit astonished that all the discussion around the private-sector stimulus has centered on infrastructure," he said. "Bailouts, too, are aimed at correcting mistakes of the past, so they are backward-looking. We would be much better off spending our money forward-looking. If we spend $700 billion on new technology and innovation, we'd have a stronger, new, real economy. Up to now, the discussion has focused on the sectors that have been mismanaged rather than the sectors that are creating our future."
Here's the truth the Obamacans don't want to face. Forget William Ayers.
Sen. Obama's political career was launched by the now-convicted criminal and constructor of disgustingly substandard housing for the poor, Antoin "Tony" Rezko. As soon as he got to the Senate, he became probably the largest recipient of Fannie/Freddie lobbying money. Under his leadership, Bill Clinton's bridge to the 21st Century should be taken literally: we are now building bridges, tearing up roads, building roads to nowhere, all to strengthen Sen. Obama's patrons in the building industry. What this program means is neglect of growth areas and international competitiveness. We can't do it all. If we must borrow (which I disagree with), at least let it be for cutting-edge 21st and even 22nd Century stuff, not stuff that Julius Caesar would have grokked.
Bloomberg.com Monday Market Commentary
Our proprietary Bloomberg video contrary market indicator is once again bearish:
Editor's video picks:
1. Clermont's Morgan says U.S. equities are 'very cheap';
2. Darda (MKM) says stimulus plan would be 'cushion' for economy;
3. Edmunds.com's Caldwell says U.S. auto sales near bottom;
4. Enderle says Apple needs a strong CEO succession plan.
Also, "Sorrentino sees opportunities in corporate bond market".
Only the CEO Spotlight is negative (Virgin Atlantic to shrink- though not really news)
Elsewhere on Bloomberg.com, two articles need criticism:
First, 'Banks' Catatonic Fear Means Consumers Don't Get TARP Relief':
Per former Fed vice chairman Alan Blinder:
“With the banks in a state of catatonic fear now, they’re just sitting on the capital,” Blinder said in an interview. “I don’t fault the banks one bit, since this shows Wall Street they’re safer, but then this doesn’t get you much improvement. If you’re taking money from the public purse, we should get something in return, and we’re really not.”
"Jeffrey Garten, a professor of international trade and finance at the Yale School of Management in New Haven, Connecticut, and a Commerce Department undersecretary during the Clinton administration, says banks should be forced to increase their lending or risk having taxpayer money taken away."
“The government isn’t acting aggressively enough to demand a quid pro quo,” Garten said. “The public good is the key to the private good in this case. It’s not the other way around.”
Blinder supported TARP. In Missing the Target with $700 Billion in a December 20 article in the New York Times, he bemoans Paulson's judgment.
Here is my judgment: this bill was a disaster from conception onward. Naturally, the $700 Billion wasn't enough for Congress. Congress conspired to have the House not pass it at first, so that it could go to the Senate which then "had" to attach it to a languishing spending bill, then send it back to the House where the purpose was changed, as Prof. Blinder very well knows, to allow stock purchase rather than asset purchase, and where the spending total was much above even $700 Billion. This is a Congress that was elected on anti-war fervor and disgust at earmarks and deficit spending, and provided to provide every war dollar that the Administration wanted, lied about implementing "paygo", and ignored its anti-earmark campaign rhetoric. For Blinder and other Establishment figures to whine about Paulson doing this and that is stomach-turning. What he/they should do is admit that the bill stank from day one and stank worse in its final form, that he/they were wrong to have supported any version of it, and that this amazing transfer of resources from the people to the powerful should stop pronto.
Perhaps the most sensible quote in the article comes from the most unsympathetic figure, the spokesperson for the banks:
Diane Casey-Landry, chief operating officer of the American Bankers Association, a trade group in Washington, said that bank profitability had to come ahead of any demand to ease lending.
“Taxpayers should get a return on their investment,” Casey-Landry said. “We have to go back to a time when we realize not everyone is entitled to get a loan. What is going to get us out of this recession is sound lending to people who are going to pay it back, not throwing money at people who can’t.”
The main criticism I have of Bloomberg is the title of the article. Banks are in no way catatonic. Catatonia is a psychotic state (to use outdated terminology). Banks are corrupt, stupid, and greedy, but they are not catatonic. They aren't lending because this is a terrible recession and credit-worthy people like me lend them money because we never believed in debt other than for a mortgage, and people unlike me are in over their heads. So while the Bloomberg.com article is a thorough one, the title provides the wrong message.
The other "big picture" article in Bloomberg.com about the economy is:
"Engines of Recovery Flame Out as Economy Seeks Obama-Fed Rescue"
The first paragraph is way too gloomy:
Jan. 5 (Bloomberg) -- The engines that have lifted the U.S. economy out of every recession since World War II will be of little help this time around.
Note the absolute tone. Then note the "may"'s in the follow-on paragraph:
Inventory rebuilding, household spending, home construction and payroll growth -- the forces that powered, to a greater or lesser extent, each recovery since 1945 -- may remain missing for much of 2009. A glut of unsold properties may keep housing depressed, while shriveled savings will discourage consumers. Companies may be reluctant to restock and rehire while their profits are squeezed.
Whenever you see this sort of writing, you should consider stopping reading. It's like the predictor of stocks a year out who can't possibly have a clue.
Finally, here's a current update from the best market economist, Nouriel Roubini of RGE Monitor (subscription), who "called" 2008 as if the script had been provided in advance. In a post today and one last week, he is unequivocal. Forget about recovery this year. In his view, it's happy talk. Worse, a month ago he was calling the chance of a long-term Japan-style flat-line economy following the downturn to be approx 10%. He has now upped this to 33%. When Roubini gets more gloomy, so do I.
Assuming he's right on trend (a good assumption for many months), anything economy-sensitive should not have your investment dollars.
Editor's video picks:
1. Clermont's Morgan says U.S. equities are 'very cheap';
2. Darda (MKM) says stimulus plan would be 'cushion' for economy;
3. Edmunds.com's Caldwell says U.S. auto sales near bottom;
4. Enderle says Apple needs a strong CEO succession plan.
Also, "Sorrentino sees opportunities in corporate bond market".
Only the CEO Spotlight is negative (Virgin Atlantic to shrink- though not really news)
Elsewhere on Bloomberg.com, two articles need criticism:
First, 'Banks' Catatonic Fear Means Consumers Don't Get TARP Relief':
Per former Fed vice chairman Alan Blinder:
“With the banks in a state of catatonic fear now, they’re just sitting on the capital,” Blinder said in an interview. “I don’t fault the banks one bit, since this shows Wall Street they’re safer, but then this doesn’t get you much improvement. If you’re taking money from the public purse, we should get something in return, and we’re really not.”
"Jeffrey Garten, a professor of international trade and finance at the Yale School of Management in New Haven, Connecticut, and a Commerce Department undersecretary during the Clinton administration, says banks should be forced to increase their lending or risk having taxpayer money taken away."
“The government isn’t acting aggressively enough to demand a quid pro quo,” Garten said. “The public good is the key to the private good in this case. It’s not the other way around.”
Blinder supported TARP. In Missing the Target with $700 Billion in a December 20 article in the New York Times, he bemoans Paulson's judgment.
Here is my judgment: this bill was a disaster from conception onward. Naturally, the $700 Billion wasn't enough for Congress. Congress conspired to have the House not pass it at first, so that it could go to the Senate which then "had" to attach it to a languishing spending bill, then send it back to the House where the purpose was changed, as Prof. Blinder very well knows, to allow stock purchase rather than asset purchase, and where the spending total was much above even $700 Billion. This is a Congress that was elected on anti-war fervor and disgust at earmarks and deficit spending, and provided to provide every war dollar that the Administration wanted, lied about implementing "paygo", and ignored its anti-earmark campaign rhetoric. For Blinder and other Establishment figures to whine about Paulson doing this and that is stomach-turning. What he/they should do is admit that the bill stank from day one and stank worse in its final form, that he/they were wrong to have supported any version of it, and that this amazing transfer of resources from the people to the powerful should stop pronto.
Perhaps the most sensible quote in the article comes from the most unsympathetic figure, the spokesperson for the banks:
Diane Casey-Landry, chief operating officer of the American Bankers Association, a trade group in Washington, said that bank profitability had to come ahead of any demand to ease lending.
“Taxpayers should get a return on their investment,” Casey-Landry said. “We have to go back to a time when we realize not everyone is entitled to get a loan. What is going to get us out of this recession is sound lending to people who are going to pay it back, not throwing money at people who can’t.”
The main criticism I have of Bloomberg is the title of the article. Banks are in no way catatonic. Catatonia is a psychotic state (to use outdated terminology). Banks are corrupt, stupid, and greedy, but they are not catatonic. They aren't lending because this is a terrible recession and credit-worthy people like me lend them money because we never believed in debt other than for a mortgage, and people unlike me are in over their heads. So while the Bloomberg.com article is a thorough one, the title provides the wrong message.
The other "big picture" article in Bloomberg.com about the economy is:
"Engines of Recovery Flame Out as Economy Seeks Obama-Fed Rescue"
The first paragraph is way too gloomy:
Jan. 5 (Bloomberg) -- The engines that have lifted the U.S. economy out of every recession since World War II will be of little help this time around.
Note the absolute tone. Then note the "may"'s in the follow-on paragraph:
Inventory rebuilding, household spending, home construction and payroll growth -- the forces that powered, to a greater or lesser extent, each recovery since 1945 -- may remain missing for much of 2009. A glut of unsold properties may keep housing depressed, while shriveled savings will discourage consumers. Companies may be reluctant to restock and rehire while their profits are squeezed.
Whenever you see this sort of writing, you should consider stopping reading. It's like the predictor of stocks a year out who can't possibly have a clue.
Finally, here's a current update from the best market economist, Nouriel Roubini of RGE Monitor (subscription), who "called" 2008 as if the script had been provided in advance. In a post today and one last week, he is unequivocal. Forget about recovery this year. In his view, it's happy talk. Worse, a month ago he was calling the chance of a long-term Japan-style flat-line economy following the downturn to be approx 10%. He has now upped this to 33%. When Roubini gets more gloomy, so do I.
Assuming he's right on trend (a good assumption for many months), anything economy-sensitive should not have your investment dollars.
Getting Buiter All the Time
Yves Smith at Naked Capitalism quotes extensively from Willem Buiter's post today at the Financial Times online. I am glad to see that she approves of his general theme, which is critical of the all-Keynes-all-the-time attitude of the Fed and the Obamacans. Personally, I have his blog bookmarked. I recommend it highly; please note that he does not post daily.
On the same topic, I commented on this topic in a Jan. 3 post titled Stimulus Plan Deconstructed:
"I conclude that the stimulus program is a fraud. Money will be borrowed from savers in the U.S. and worldwide, and/or printed out of thin air, for projects that will largely occur when the cyclical downturn has become a cyclical upturn. Many projects will never be completed. Some years from now, it will be reported on how large a percentage of this program was wasted."
Previously, on Dec. 29, 2008, in my More Krugman post, I said things a little more politely (I am a physician, FYI):
"As physicians say, "Treat a cold, and it will last seven days. Leave it alone, and it will last a week." So with the economy. But in Obama-Krugman-land, building lots of roads with borrowed or printed money is the "doing something" that does more damage than an unnecessary course of antibiotics for a viral URI. But it sure is good for Big Gov and its hangers-on.
After a frenzied five or six years, the global economy simply needs a rest. The last thing it needs is an artificial "stimulus."
One point of disagreement with I have with Buiter's views is his certitude that the real cost of obtaining funding from the rest of world will rise for the U.S. Since the US still has lots of troops in Japan and the Gulf States are weak protectorates of the Colossus (who put the 'US' in 'colossus'?), and there are still troops in Western Europe 64 or so years after V-E Day, pari passu the US remains the only economic and military hyperpower- rationality may be trumped by realpolitik.
Yves also criticizes Prof. Krugman for two of his pieces in the New York Times, including today's.
I began this blog last month with two pieces on Krugman, one linked to the above, and the first, which panned his Dec. 29 op-ed Fifty Herbert Hoovers.
It is encouraging for this beginning blogger to see that Yves Smith, a pre-eminent and insightful blogger, has been writing about similar topics to me with apparently some similar points of view.
On the same topic, I commented on this topic in a Jan. 3 post titled Stimulus Plan Deconstructed:
"I conclude that the stimulus program is a fraud. Money will be borrowed from savers in the U.S. and worldwide, and/or printed out of thin air, for projects that will largely occur when the cyclical downturn has become a cyclical upturn. Many projects will never be completed. Some years from now, it will be reported on how large a percentage of this program was wasted."
Previously, on Dec. 29, 2008, in my More Krugman post, I said things a little more politely (I am a physician, FYI):
"As physicians say, "Treat a cold, and it will last seven days. Leave it alone, and it will last a week." So with the economy. But in Obama-Krugman-land, building lots of roads with borrowed or printed money is the "doing something" that does more damage than an unnecessary course of antibiotics for a viral URI. But it sure is good for Big Gov and its hangers-on.
After a frenzied five or six years, the global economy simply needs a rest. The last thing it needs is an artificial "stimulus."
One point of disagreement with I have with Buiter's views is his certitude that the real cost of obtaining funding from the rest of world will rise for the U.S. Since the US still has lots of troops in Japan and the Gulf States are weak protectorates of the Colossus (who put the 'US' in 'colossus'?), and there are still troops in Western Europe 64 or so years after V-E Day, pari passu the US remains the only economic and military hyperpower- rationality may be trumped by realpolitik.
Yves also criticizes Prof. Krugman for two of his pieces in the New York Times, including today's.
I began this blog last month with two pieces on Krugman, one linked to the above, and the first, which panned his Dec. 29 op-ed Fifty Herbert Hoovers.
It is encouraging for this beginning blogger to see that Yves Smith, a pre-eminent and insightful blogger, has been writing about similar topics to me with apparently some similar points of view.
Sunday, January 4, 2009
Starving Brokers
Once again, bloomberg.com shows the following videos: Kinetic's Bennett Is `Bullish' on Australian Economy; Williams Sees Australian Retail Stocks Rise on Stimulus; Fed's Evans Supports U.S. Stimulus, Sees `Sobering' Debt; EPFR's Durham Says China's Stocks Are `Very Attractive'. Also, under "Portfolio Matters", someone named Liu is bullish on a variety of Chinese sectors. So, 4/5 videos are bullish, and the Fed's Evans is sending a subliminal message that they are on the case with the correct "stimulus" strategy.
So, there's one continuing negative indicator: bullish Bloomberg videos.
Next, Janet Yellen favors action:
Yellen: Pull out all stops for grim economy
By Ros Krasny Ros Krasny Sun Jan 4, 2:49 pm ET
SAN FRANCISCO (Reuters) – The U.S. economy faces a potentially long period of weak growth and a rising risk of deflation, making it worth "pulling out all the stops" with a big fiscal spending program, Janet Yellen, president of the San Francisco Federal Reserve Bank, said on Sunday.
"The financial and economic firestorm we face today poses a serious risk of an extended period of stagnation -- a very grim outcome," Yellen said on a panel discussion at the American Economics Association's annual meeting in San Francisco.
"If ever, in my professional career, there was a time for active, discretionary fiscal stimulus, it is now."
Yellen said she was skeptical about suggestions for broad-based, permanent tax cuts and backed the "diversified package of policies" suggested recently by the International Monetary Fund.
Specifically, Yellen urged "spending on goods and services with higher rather than lower social value," but said measures should be consistent with "long-term fiscal discipline" to be the most effective.
If the public doesn't believe that spending increases are temporary, then long-term interest rates are likely to rise in response, "undercutting, conceivably even overwhelming, the short-term stimulus," Yellen said.
President-elect Barack Obama has said that signing a major economic stimulus package will be his first priority when he takes office, with a goal of creating or saving 3 million jobs over two years.
Speaking on the same panel as Yellen, renowned economist Martin Feldstein said that $300 billion to $400 billion in fiscal measures in 2009 and 2010 seemed justified.
Feldstein, former head of the National Bureau of Economic Research, also warned that the current recession, with its roots in a financial crisis rather than restrictive Fed interest rate policy, could easily drag on for the rest of 2009.
DEFLATION RISK
With the United States already bogged down by a year-long recession, Yellen said there is a rising risk of deflation, or a persistent decline in prices that could cause consumers to delay purchases, dragging down the economy further.
"With an extended period of abnormally high unemployment in the forecast, it is increasingly likely that inflation will fall to undesirably low levels," she said.
Calculated Risk comments on Yellen and Feldstein:
Since the cause of the current recession is different than other post WWII recessions, the dynamics of the eventual recovery might be different too.
My comments:
With respect to CR, every depression/recession is different. While of course the dynamics here may be different, the current downturn is hardly unique. It followed a period of Fed tightening, which burst the housing and general credit bubble. The credit bubble was worldwide, and the entire industrialized world went into a tailspin. In the early 1930s, orthodox policy of protecting the export industry and balancing the budget were followed, with poor results. The current policy of printing money and resurrecting Keynes is likely to have the same poor results.
With regard to Dr. Yellen: please let inflation fall to zero, if it is not there already. Your dear Fed was formed over 95 years ago. In that time it has engineered the Great Depression and numerous inflations. It turned a blind eye to the obvious housing shenanigans this decade. Three cents in 1913 would buy what a dollar buys today. Some price stability, or even some gentle inflation, would help most of us, given that our wages are not rising and T-bill rates of zero are ridiculous, far worse than what savers could get in the early 1930's at a time when prices were dropping rapidly. What you, Dr. Yellen, are saying is that you and the rest of the Fed are enablers of the inflation lobby that favors borrowers over savers. The problem is that the public actively wants to save and wants to believe that money should hold its value. If the Fed would stop trashing money by generally keeping rates at or below inflation rates, tons of money would come into the US and buoy the markets. Volckerism is needed once again. Dr. Yellen and the Fed are fighting the Great Depression but with a largely busted government.
Mish sees matters more clearly:
"Nearly everyone is hopping on the Keynesian bandwagon as the urge to try something, anything, to halt this economic slide is simply overpowering."
"To further recap, Yellen proposes "novel interventions" of dubious merit, admitting they will not work, and wants a "timely" plan to end them.How about right now, before they do any more damage?"
He knows, however, that he is a minuscule minority, and that the hyperactive train is going to leave the station.
Also, Obama is taking a page from the G W Bush 2001 and 2008 playbooks and now wants to cut taxes. Democrats opposed the 2001 tax cut as unfunded, and retrospectively denied that the shortness of the recession had anything to do with that cut. And one and all must agree that the hasty, bipartisan 2008 tax cut was useless. Obama obviously believes that the third time's the charm:
Jan. 4 (Bloomberg) -- President-elect Barack Obama is pushing for tax cuts amounting to hundreds of billions of dollars in a stimulus package he’s asking Congress to pass within the next several weeks, a transition official and a Democratic aide say.
Meanwhile, here's the real news from Bloomberg.com:
Global Corporate Profits to Drop in ’09; More Bankruptcies Loom
By Katie Hoffmann and Joseph Galante
Jan. 5 (Bloomberg) -- Corporate earnings will continue to slump into the first half of 2009 amid the first simultaneous recessions in the U.S., Japan and Europe since World War II.
Earnings at Standard & Poor’s 500 companies will probably fall in the first half, marking eight straight quarters of declines. In Europe and Asia, the outlook may be even worse as the recession curbs demand for retail goods and exports.
All the happy-talkers and bottom-callers want you to purchase stocks. They want this because this is how they make a living. You will see primarily scary headlines on the Bloomberg videos when their preferred clients have sold all the stocks they want to at higher prices than are then extant. The brokers make no money when at a time of deflation and the worst global economy in 70+ years, you gain a positive yield over inflation when you pay no commission, take no risk, and purchase a Federally-insured CD. In the 1940s and 1950s, the financial community made a mid-single digit share of the national profit stream. On an as-reported basis (which was fraudently reported, to be sure), this share of profits may have hit 40% in 2007. The brokers are desperate for your business and need to engineer a rally to suck you in. The truth is that unless you are a professional money manager, there is fundamentally too much risk in this economy for you to risk money you need in the broad stock market. Let the stock brokers eat cake.
So, there's one continuing negative indicator: bullish Bloomberg videos.
Next, Janet Yellen favors action:
Yellen: Pull out all stops for grim economy
By Ros Krasny Ros Krasny Sun Jan 4, 2:49 pm ET
SAN FRANCISCO (Reuters) – The U.S. economy faces a potentially long period of weak growth and a rising risk of deflation, making it worth "pulling out all the stops" with a big fiscal spending program, Janet Yellen, president of the San Francisco Federal Reserve Bank, said on Sunday.
"The financial and economic firestorm we face today poses a serious risk of an extended period of stagnation -- a very grim outcome," Yellen said on a panel discussion at the American Economics Association's annual meeting in San Francisco.
"If ever, in my professional career, there was a time for active, discretionary fiscal stimulus, it is now."
Yellen said she was skeptical about suggestions for broad-based, permanent tax cuts and backed the "diversified package of policies" suggested recently by the International Monetary Fund.
Specifically, Yellen urged "spending on goods and services with higher rather than lower social value," but said measures should be consistent with "long-term fiscal discipline" to be the most effective.
If the public doesn't believe that spending increases are temporary, then long-term interest rates are likely to rise in response, "undercutting, conceivably even overwhelming, the short-term stimulus," Yellen said.
President-elect Barack Obama has said that signing a major economic stimulus package will be his first priority when he takes office, with a goal of creating or saving 3 million jobs over two years.
Speaking on the same panel as Yellen, renowned economist Martin Feldstein said that $300 billion to $400 billion in fiscal measures in 2009 and 2010 seemed justified.
Feldstein, former head of the National Bureau of Economic Research, also warned that the current recession, with its roots in a financial crisis rather than restrictive Fed interest rate policy, could easily drag on for the rest of 2009.
DEFLATION RISK
With the United States already bogged down by a year-long recession, Yellen said there is a rising risk of deflation, or a persistent decline in prices that could cause consumers to delay purchases, dragging down the economy further.
"With an extended period of abnormally high unemployment in the forecast, it is increasingly likely that inflation will fall to undesirably low levels," she said.
Calculated Risk comments on Yellen and Feldstein:
Since the cause of the current recession is different than other post WWII recessions, the dynamics of the eventual recovery might be different too.
My comments:
With respect to CR, every depression/recession is different. While of course the dynamics here may be different, the current downturn is hardly unique. It followed a period of Fed tightening, which burst the housing and general credit bubble. The credit bubble was worldwide, and the entire industrialized world went into a tailspin. In the early 1930s, orthodox policy of protecting the export industry and balancing the budget were followed, with poor results. The current policy of printing money and resurrecting Keynes is likely to have the same poor results.
With regard to Dr. Yellen: please let inflation fall to zero, if it is not there already. Your dear Fed was formed over 95 years ago. In that time it has engineered the Great Depression and numerous inflations. It turned a blind eye to the obvious housing shenanigans this decade. Three cents in 1913 would buy what a dollar buys today. Some price stability, or even some gentle inflation, would help most of us, given that our wages are not rising and T-bill rates of zero are ridiculous, far worse than what savers could get in the early 1930's at a time when prices were dropping rapidly. What you, Dr. Yellen, are saying is that you and the rest of the Fed are enablers of the inflation lobby that favors borrowers over savers. The problem is that the public actively wants to save and wants to believe that money should hold its value. If the Fed would stop trashing money by generally keeping rates at or below inflation rates, tons of money would come into the US and buoy the markets. Volckerism is needed once again. Dr. Yellen and the Fed are fighting the Great Depression but with a largely busted government.
Mish sees matters more clearly:
"Nearly everyone is hopping on the Keynesian bandwagon as the urge to try something, anything, to halt this economic slide is simply overpowering."
"To further recap, Yellen proposes "novel interventions" of dubious merit, admitting they will not work, and wants a "timely" plan to end them.How about right now, before they do any more damage?"
He knows, however, that he is a minuscule minority, and that the hyperactive train is going to leave the station.
Also, Obama is taking a page from the G W Bush 2001 and 2008 playbooks and now wants to cut taxes. Democrats opposed the 2001 tax cut as unfunded, and retrospectively denied that the shortness of the recession had anything to do with that cut. And one and all must agree that the hasty, bipartisan 2008 tax cut was useless. Obama obviously believes that the third time's the charm:
Jan. 4 (Bloomberg) -- President-elect Barack Obama is pushing for tax cuts amounting to hundreds of billions of dollars in a stimulus package he’s asking Congress to pass within the next several weeks, a transition official and a Democratic aide say.
Meanwhile, here's the real news from Bloomberg.com:
Global Corporate Profits to Drop in ’09; More Bankruptcies Loom
By Katie Hoffmann and Joseph Galante
Jan. 5 (Bloomberg) -- Corporate earnings will continue to slump into the first half of 2009 amid the first simultaneous recessions in the U.S., Japan and Europe since World War II.
Earnings at Standard & Poor’s 500 companies will probably fall in the first half, marking eight straight quarters of declines. In Europe and Asia, the outlook may be even worse as the recession curbs demand for retail goods and exports.
All the happy-talkers and bottom-callers want you to purchase stocks. They want this because this is how they make a living. You will see primarily scary headlines on the Bloomberg videos when their preferred clients have sold all the stocks they want to at higher prices than are then extant. The brokers make no money when at a time of deflation and the worst global economy in 70+ years, you gain a positive yield over inflation when you pay no commission, take no risk, and purchase a Federally-insured CD. In the 1940s and 1950s, the financial community made a mid-single digit share of the national profit stream. On an as-reported basis (which was fraudently reported, to be sure), this share of profits may have hit 40% in 2007. The brokers are desperate for your business and need to engineer a rally to suck you in. The truth is that unless you are a professional money manager, there is fundamentally too much risk in this economy for you to risk money you need in the broad stock market. Let the stock brokers eat cake.
Saturday, January 3, 2009
"Stimulus" Plan Deconstructed
Multitudes are bidding up stocks and are, more broadly, expecting good things for the economy, because of America's second "stimulus" plan. The first one, hastily put together a year ago, did manage to prop up stock prices long enough to let all who saw matters clearly exit the market at attractive prices. This one has now been described today by the Pres-Elect. This blog would like to be an "Early Responder" on a hot Miami afternoon in winter.
What follows are Obama quotes in boldface and DoctoRx responses.
" . . . we risk falling into a deflationary spiral"
-Puh-leese! Ben knows how to pilot the Fed-i-copter. Since the Fed was created, money has lost about 97% of its value. Prior to creation of the Fed, prices were stable over centuries in this country. In any case, prices are up substantially over the last several years. A little settling back would help all consumers and savers.
"We'll put people back to work . . . building wind farms and solar panels; fuel-efficient cars . . ."
1. Wind farms and solar panels are highly cost-ineffective at anywhere near current energy prices. So, the cost per job will be gigantic. Welfare would likely be cheaper.
2. The Japanese, Koreans, and even Americans are already building fuel-efficient cars. Prius sales were down about 50% in November. Government should not direct production of one type of car or another. Tax incentives, gasoline taxes, etc. are perfectly adequate for those purposes.
"I will need and seek support from Republicans and Democrats . . ."
No, you don't need Republican support. What you are signaling is that Republican legislators, Governors and mayors can be sure that their constituents will share in the loot.
"What is not negotiable is the need for immediate action."
There were no significant Congressional hearings before the first stimulus package, the Bank of America-written housing bill in the summer, the TARP bill, etc. Congress has been lounging around all December and will continue to do so until they must show up in a cold D.C. this month. Where are the hearings and the research?
Translation: We let Bush and Paulson reward their friends with hundreds of billions of dollars. It's our turn now.
"Right now, there are millions of mothers and fathers who are lying awake at night wondering if next week's paycheck will cover next month's bills . . . These Americans need help, and they need it now."
This should argue for help to states for unemployment insurance, Medicaid, etc. Yet the plan is all about construction and a "down-payment" on something or other. The future, I think it is. Thus the invocation of people who are indeed hurting is irrelevant to the "stimulus".
Overall comment: Mr. Obama stated he intends to sign a bill promptly after taking office. One would think that for this alleged emergency, Congress would have been working non-stop to evaluate how best to spend the money, with safeguards against the inevitable waste and fraud that go into gigantic construction projects.
I conclude that the stimulus program is a fraud. Money will be borrowed from savers in the U.S. and worldwide, and/or printed out of thin air, for projects that will largely occur when the cyclical downturn has become a cyclical upturn. Many projects will never be completed. Some years from now, it will be reported on how large a percentage of this program was wasted.
Sen. Obama voted for the bogus "stimulus" package of a year ago, most of which helped out financial institutions, as most of it was saved. He voted for the alleged housing assistance bill this summer, which was reported to have been essentially written by Bank of America, and which was recently reported to have helped out almost no homeowners.
He voted with the rest of the Establishment for the corrupt bail-out "TARP" bill.
He was a gigantic recipient of Fannie/Freddie lobbying money in his short tenure as Senator.
There should be no doubt: This is a Government of continuity. The only real change is which branch of the Establishment is now ascendant. The ancien regime concluded that with the Bush/Republican brand in disrepute for the nonce, a biracial, well-spoken man would serve its interests better than a former President's wife. Help is on the way- for the entrenched powers in this country. But not for anyone you know- except "contractors". And not for investors- not yet.
What follows are Obama quotes in boldface and DoctoRx responses.
" . . . we risk falling into a deflationary spiral"
-Puh-leese! Ben knows how to pilot the Fed-i-copter. Since the Fed was created, money has lost about 97% of its value. Prior to creation of the Fed, prices were stable over centuries in this country. In any case, prices are up substantially over the last several years. A little settling back would help all consumers and savers.
"We'll put people back to work . . . building wind farms and solar panels; fuel-efficient cars . . ."
1. Wind farms and solar panels are highly cost-ineffective at anywhere near current energy prices. So, the cost per job will be gigantic. Welfare would likely be cheaper.
2. The Japanese, Koreans, and even Americans are already building fuel-efficient cars. Prius sales were down about 50% in November. Government should not direct production of one type of car or another. Tax incentives, gasoline taxes, etc. are perfectly adequate for those purposes.
"I will need and seek support from Republicans and Democrats . . ."
No, you don't need Republican support. What you are signaling is that Republican legislators, Governors and mayors can be sure that their constituents will share in the loot.
"What is not negotiable is the need for immediate action."
There were no significant Congressional hearings before the first stimulus package, the Bank of America-written housing bill in the summer, the TARP bill, etc. Congress has been lounging around all December and will continue to do so until they must show up in a cold D.C. this month. Where are the hearings and the research?
Translation: We let Bush and Paulson reward their friends with hundreds of billions of dollars. It's our turn now.
"Right now, there are millions of mothers and fathers who are lying awake at night wondering if next week's paycheck will cover next month's bills . . . These Americans need help, and they need it now."
This should argue for help to states for unemployment insurance, Medicaid, etc. Yet the plan is all about construction and a "down-payment" on something or other. The future, I think it is. Thus the invocation of people who are indeed hurting is irrelevant to the "stimulus".
Overall comment: Mr. Obama stated he intends to sign a bill promptly after taking office. One would think that for this alleged emergency, Congress would have been working non-stop to evaluate how best to spend the money, with safeguards against the inevitable waste and fraud that go into gigantic construction projects.
I conclude that the stimulus program is a fraud. Money will be borrowed from savers in the U.S. and worldwide, and/or printed out of thin air, for projects that will largely occur when the cyclical downturn has become a cyclical upturn. Many projects will never be completed. Some years from now, it will be reported on how large a percentage of this program was wasted.
Sen. Obama voted for the bogus "stimulus" package of a year ago, most of which helped out financial institutions, as most of it was saved. He voted for the alleged housing assistance bill this summer, which was reported to have been essentially written by Bank of America, and which was recently reported to have helped out almost no homeowners.
He voted with the rest of the Establishment for the corrupt bail-out "TARP" bill.
He was a gigantic recipient of Fannie/Freddie lobbying money in his short tenure as Senator.
There should be no doubt: This is a Government of continuity. The only real change is which branch of the Establishment is now ascendant. The ancien regime concluded that with the Bush/Republican brand in disrepute for the nonce, a biracial, well-spoken man would serve its interests better than a former President's wife. Help is on the way- for the entrenched powers in this country. But not for anyone you know- except "contractors". And not for investors- not yet.
MIA: New Paradigm (follow-up)
Please read the prior post regarding The Structure of Scientific Revolutions and the need for a new financial paradigm.
Here is a quote from page 5 of the 1970 second edition of that book. If you substitute "finance" or "financial" for "science" or "scientific", you will see the point.
"Normal science, the activity in which most scientists inveitably spend almost all their time, is predicated on the assumption that the scientific community knows what the world is like. Much of the success of the enterprise derives from the community's willingness to defend that assumption, if necessary at considerable cost."
We are all suffering the "considerable costs" of the financial community's willingness (nay, eagerness) to defend its "assumptions". But they did not even know what their own companies were like, to say nothing of the financial world as a whole.
Here is a quote from page 5 of the 1970 second edition of that book. If you substitute "finance" or "financial" for "science" or "scientific", you will see the point.
"Normal science, the activity in which most scientists inveitably spend almost all their time, is predicated on the assumption that the scientific community knows what the world is like. Much of the success of the enterprise derives from the community's willingness to defend that assumption, if necessary at considerable cost."
We are all suffering the "considerable costs" of the financial community's willingness (nay, eagerness) to defend its "assumptions". But they did not even know what their own companies were like, to say nothing of the financial world as a whole.
MIA: A New Paradigm
Naked Capitalism provides a link to the following article at the Guardian online:
"A Bank of England survey found that in spite of Gordon Brown's call for more loans, lenders had further reduced the amount of credit available in the last three months of 2008 and warned that they planned t0 continue to pare back . . . Labour bankbench MPs seized on the figures to put more pressure on Brown and Alistair Darling to take action to kick-start lending . . ."
After one of the most manic, stupid and corrupt lending sprees in the history of the world, Labour wants to throw good money after bad.
The same zeitgeist pervades the U.S. Borrowing and lending must be supported at all costs. But no one can justify the bailout of owners of preferred stock and corporate bonds of insolvent financial institutions. All we hear of is that if only these insolvent companies would lend, all would be well.
Wishing and hoping does not make it so. The Democratic brand of American corporatism has no higher aspirations than the Republican brand. The same is true for Britain. It is all about enriching themselves and their allies in the establishment.
What is needed is a new paradigm. In The Structure of Scientific Revolutions, , Thomas Kuhn popularized the term "paradigm shift". You may enjoy the Wikipedia review of this book. The book can be read at book uploading services, for example at scribd. Chapter 5, "The Priority of Paradigms", and Chaper 10, "Revolutions as Changes of World View", show my point as titles alone.
It is time for a new paradigm in finance and economics. Out with the current one, in with the old. The new paradigm should be an old one: neither a borrower nor a lender be (wherever possible). The current system is falling of its own excesses. We should not be owing money to each other in an endless daisy chain. We should own outright what we possess and borrow prudently with proper collateral. This collateral could be a CPA certification or it could be arable land. Instead what we see is what Kuhn observed. He noted that the keepers of the current paradigm needed to die off to allow the better, simpler paradigm to take root. The current financial establishment is so rich and powerful from the current practice of unrestrained lending that it will not let go. The enablers such as Greenspan and Bernanke, and Republicrats in the US and Labouratives in the UK, either don't know enough to understand that the old truths remain true though old, and/or the politicians are bought off cheaply.
Bernanke knows how much Greenspan is earning "advising" Pimco and others, and he expects the same will accrue to him as his payoff when he leaves government service.
"Banks defy Brown call to free up credit
Loans for business increasingly scarce and outlook bleak, says report"
"A Bank of England survey found that in spite of Gordon Brown's call for more loans, lenders had further reduced the amount of credit available in the last three months of 2008 and warned that they planned t0 continue to pare back . . . Labour bankbench MPs seized on the figures to put more pressure on Brown and Alistair Darling to take action to kick-start lending . . ."
After one of the most manic, stupid and corrupt lending sprees in the history of the world, Labour wants to throw good money after bad.
The same zeitgeist pervades the U.S. Borrowing and lending must be supported at all costs. But no one can justify the bailout of owners of preferred stock and corporate bonds of insolvent financial institutions. All we hear of is that if only these insolvent companies would lend, all would be well.
Wishing and hoping does not make it so. The Democratic brand of American corporatism has no higher aspirations than the Republican brand. The same is true for Britain. It is all about enriching themselves and their allies in the establishment.
What is needed is a new paradigm. In The Structure of Scientific Revolutions, , Thomas Kuhn popularized the term "paradigm shift". You may enjoy the Wikipedia review of this book. The book can be read at book uploading services, for example at scribd. Chapter 5, "The Priority of Paradigms", and Chaper 10, "Revolutions as Changes of World View", show my point as titles alone.
It is time for a new paradigm in finance and economics. Out with the current one, in with the old. The new paradigm should be an old one: neither a borrower nor a lender be (wherever possible). The current system is falling of its own excesses. We should not be owing money to each other in an endless daisy chain. We should own outright what we possess and borrow prudently with proper collateral. This collateral could be a CPA certification or it could be arable land. Instead what we see is what Kuhn observed. He noted that the keepers of the current paradigm needed to die off to allow the better, simpler paradigm to take root. The current financial establishment is so rich and powerful from the current practice of unrestrained lending that it will not let go. The enablers such as Greenspan and Bernanke, and Republicrats in the US and Labouratives in the UK, either don't know enough to understand that the old truths remain true though old, and/or the politicians are bought off cheaply.
Bernanke knows how much Greenspan is earning "advising" Pimco and others, and he expects the same will accrue to him as his payoff when he leaves government service.
And etc.
The powers-that-be are in a frenzied rush to prop up the debt-based economy. No one can predict the outcomes re stock and bond prices, inflation rates, etc. Too many unknowns exist for that. What is a safer prediction is based on recent and less recent history: this is unlikely to end well and it is unlikely to be over. The more "experts" come on Bloomberg.com to assert confidently that we have seen the bottom of the stock market and housing market, the more one should fear "surprises" to the downside. (See my prior post.)
Copyright (C) Long Lake LLC 2009
The powers-that-be are in a frenzied rush to prop up the debt-based economy. No one can predict the outcomes re stock and bond prices, inflation rates, etc. Too many unknowns exist for that. What is a safer prediction is based on recent and less recent history: this is unlikely to end well and it is unlikely to be over. The more "experts" come on Bloomberg.com to assert confidently that we have seen the bottom of the stock market and housing market, the more one should fear "surprises" to the downside. (See my prior post.)
Copyright (C) Long Lake LLC 2009
Hold Onto Your Wallets
The investing class should have learned by now not to listen to advice from those who want to sell them things. Now that the Dow Jones average has climbed a wall of worry and has risen over 20% from the November low point, look what Bloomberg.com's videos show this morning:
"Cantor's Pado Sees Bull Market for U.S. Stocks in 2009"
"Jeffrey Saut (Raymond James "Strategist") Says 'Worst Has Been Seen' for Stocks"
"Vitner (Wachovia) Sees 'Definitive Bottom' for Home Sales in 2009"
and
"Jim O'Neill (Goldman Sachs) Says Governments to Lead Way to Recovery"
Bakers are telling you that bread, cakes and cookies are good for you. You will be wise to ignore them. When stockbrokers want to purchase inventory, they will tell you that you should disgorge the same securities they now want you to buy. What you should do with merchants of empty calories is what you should do with these guys. You shouldn't look at their advertising. There is a reason that Bloomberg.com and other financial portals are free. That is because they are advertising. Just as food advertising has helped make America wildly obese, so has financial advertising helped make America financially unfit.
What's good for these guys is probably not good for you.
"Cantor's Pado Sees Bull Market for U.S. Stocks in 2009"
"Jeffrey Saut (Raymond James "Strategist") Says 'Worst Has Been Seen' for Stocks"
"Vitner (Wachovia) Sees 'Definitive Bottom' for Home Sales in 2009"
and
"Jim O'Neill (Goldman Sachs) Says Governments to Lead Way to Recovery"
Bakers are telling you that bread, cakes and cookies are good for you. You will be wise to ignore them. When stockbrokers want to purchase inventory, they will tell you that you should disgorge the same securities they now want you to buy. What you should do with merchants of empty calories is what you should do with these guys. You shouldn't look at their advertising. There is a reason that Bloomberg.com and other financial portals are free. That is because they are advertising. Just as food advertising has helped make America wildly obese, so has financial advertising helped make America financially unfit.
What's good for these guys is probably not good for you.
Friday, January 2, 2009
Start All Over Again
Anyone interested in the future of the economy and financial markets should click on the title of this post to link to a marvelous piece. It reviews the history of major financial and economic crises over many countries and different time spans. Even leaving l'affaire Madoff aside, it appears that many of the other financial crises cited did not involve the level of fraud and systemic lunacy that occurred in America's debt-induced panic. I would therefore expect that the American experience will tend to be worse than the average. The Bernanke response and the Obama-Congressional plan is right out of the 1930s as well as Japan in the 1990s- makework. Just as the Hoover-Congressional solutions followed conventional wisdom and were counterproductive, I fear and expect that the current "solutions" are equally unimaginative and will prove to be unhelpful. At least the US in the '30s and Japan in the '90s were creditor nations with unleveraged governments and societies. How, pray tell, does the incoming Adminsitration intend to pay for its "stimulus" program? It can only be out of borrowing- which is the problem that got us to this point and therefore can't be the solution- or money-printing, which failed when tried in the 1970s. And does anyone really believe that there are massive amounts of "shovel-ready" public works/infrastructure programs that will "stimulate" the economy promptly after a bill is signed? And does anyone really believe that these programs will end before the next up-cycle, and will not therefore add to inflationary pressures in that up-cycle? Also, perhaps a few people believe that much of the money won't be wasted or stolen. I am not one of those believers. As a New Yorker now living in Miami, fraud and waste are the norm with infrastructure-related projects paid for by you and me; and nothing is ever completed on time, if indeed a project is ever completed at all.
The core solution too our current problems is simple. Because it is simple and involves torpor rather than stimulus, it buys no votes or campaign contributions. It involves the acceptance of the fact that there is an economic cycle. This cycle is similar to that of people and organizations that work very hard. They need a rest. This economy is going to rest. If Government had no debt, sure- let a John Maynard Keynes suggest the revolutionary approach of borrowing to stimulate. We need to reliquefy at all levels of the economy. The Bernanke solution of turning the Fed into the largest borrower of junk financial assets is way too risky. Just "Let It Be". The economy will recover when it is good and ready. Cheap oil, lots of eager labor and hungry capital: if government stays out of the way and stays solvent, things will be just fine. A hyperactive government appears desperate and hurts, not helps, psychology.
In "Swing Time", Fred Astaire sings of picking yourself up and starting all over again. That's what we need to do here. End the super-cycle of debt piled upon debt and a still-over-leveraged banking system. Deal with the losses, bring debt to manageable levels, and implement a system in which equity and not debt is preferred. Save the financial system but let the mismanaged corrupt institutions disappear. The impending "stimulus" program is a "hair of the dog" strategy and will fail. America needs a real change. Unfortunately, it's not going to get it until the Obama program fails.
The core solution too our current problems is simple. Because it is simple and involves torpor rather than stimulus, it buys no votes or campaign contributions. It involves the acceptance of the fact that there is an economic cycle. This cycle is similar to that of people and organizations that work very hard. They need a rest. This economy is going to rest. If Government had no debt, sure- let a John Maynard Keynes suggest the revolutionary approach of borrowing to stimulate. We need to reliquefy at all levels of the economy. The Bernanke solution of turning the Fed into the largest borrower of junk financial assets is way too risky. Just "Let It Be". The economy will recover when it is good and ready. Cheap oil, lots of eager labor and hungry capital: if government stays out of the way and stays solvent, things will be just fine. A hyperactive government appears desperate and hurts, not helps, psychology.
In "Swing Time", Fred Astaire sings of picking yourself up and starting all over again. That's what we need to do here. End the super-cycle of debt piled upon debt and a still-over-leveraged banking system. Deal with the losses, bring debt to manageable levels, and implement a system in which equity and not debt is preferred. Save the financial system but let the mismanaged corrupt institutions disappear. The impending "stimulus" program is a "hair of the dog" strategy and will fail. America needs a real change. Unfortunately, it's not going to get it until the Obama program fails.
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